Health Insurance Mergers Falling Into Place

Aetna Inc. (NYSE: AET) was the first to strike. The company announced that it would be acquiring Humana Inc. (NYSE: HUM), which it has had its eye on from the beginning. With this merger, both companies come off the table and UnitedHealth Group Inc. (NYSE: UNH) has to look to either Anthem Inc. (NYSE: ANTM) or Cigna Corp. (NYSE: CI) if it wants to make an acquisition, due to antitrust laws.

At first this almost sounds like an insurance feeding frenzy. It isn’t. In fact this is how these companies are planning to survive under the Affordable Care Act. As a reminder, insurance companies were the most targeted segment of health care under Obamacare. The end result sure looks as if none of the players want to be left out. You could literally be looking at an insurance sector that is down to three or so major carriers in each market ahead.

Back to Aetna, the company will be spending $37 billion to acquire Humana in a cash-and-stock deal. A caveat of this deal is that Aetna would have to pay Humana $1 billion dollars should this deal fall apart due to regulatory scrutiny.

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On Monday morning, Humana cuts its earnings outlook for the full year. The company now expects $7.75 in earnings per share (EPS) for 2015, compared to the Thomson Reuters consensus estimate of $8.65 per share. For the second quarter, Humana expects $1.60 to $1.65 in EPS, versus the consensus estimate of $2.37.

Assuming this deal between Aetna and Humana goes through, it will all come down to Cigna, Anthem and UnitedHealth to decide the fate of the rest of the industry.

A smaller deal was announced recently as well. Centene Corp. (NYSE: CNC) agreed to acquire Health Net Inc. (NYSE: HNT) for roughly $6.3 billion, creating the biggest private administrator of Medicaid.

Shares of Aetna were down 5.4% to $118.75 just after the opening bell Monday. The stock has a consensus analyst price target of $131.29 and a 52-week trading range of $71.81 to $134.40.

Humana shares were up 2.5%, at $192.12 in a 52-week trading range of $115.51 to $219.79. The stock has a consensus price target of $190.39.

UnitedHealth shares were down 0.5% to $121.25. The consensus analyst price target is $141.10, and the 52-week range is $78.74 to $124.11.

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Cigna shares were down 1.6%, at $158.66 in a 52-week range of $85.75 to $170.68. The consensus price target is $156.15.

Shares of Anthem were down 1.9% to $160.09, in a 52-week range of $106.52 to $173.59. The consensus price target is $178.75.